The government keeps sinking money into AIG; next up, automakers and homeowners!

Remember that way back in September, the Fed’s original loan was for $85 billion. In less than two months, then, taxpayers will have almost doubled their original investment in AIG, a company that announced a quarterly loss of nearly $24.5 billion Monday. It’s reasonable to wonder why we’re still putting money into this pit. The answer is the same for Paulson as it was for Hanks: Nobody else would want to buy this mess, so walking away now would be even more costly than sticking with it.

So with AIG, we’re left more or less where we started. It’s still too integral to the credit system to let it completely collapse. And it still has too many assets and derivatives of those assets that are too interconnected to the rest of the system. We’ve seen what havoc the failure of Lehman Bros. wrought, putting economic pressure on Paulson and Bernanke not to let any more finance institutions fail.

At the same time, though, political pressure is starting to frown on finance bailouts, which makes further nonbank bailouts a possibility. The new AIG investment only makes this more probable. The reasoning goes: AIG wouldn’t have to be bailed out if people could afford their mortgages, so why not give money directly to the people, which would save money and homes in the long run? If we can find another $30 billion to $40 billion for a financial-insurance company, then we should be able to find that much for an automaker. Whether or not these arguments lead to the right conclusions, they do have a certain why-not-us logic about them.

Investments in automakers and homeowners, of course, could be money pits themselves. As we’ve seen, the government is serious when it calls a company too big to fail and has thus far followed through on its promises. There’s no reason to think that mentality won’t carry over to the automotive sector. Renegotiating mortgage terms, meanwhile, carries huge taxpayer costs and isn’t guaranteed to turn around a housing market that is in need of both buyers and sellers. This, too, could be a slippery slope.

Needless to say, tending to multiple sinkholes would become a problem. The government may be able to have one money pit, but it can’t keep sinking money into the entire economy. (That’s called socialism.) But when an entire neighborhood clamors for improvements, it’s tough not to try to flip a quick profit by making a few investments. Buyer beware.